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Sunday, December 1, 2013

The art of supporting agriculture

A few countries stand out with different food and agriculture policies. The Swiss constitution was amended in 1996 to explicitly include a reference to the multifunctional nature of agriculture – that agriculture contributes to food security, resource conservation, landscape and rural settlements. As of today various support and remuneration from the government constitute more than half of the farmers’ income. This gives you an idea of how strong the forces of competition are on farms. Certainly this level of support comes at a price. First, much tax money is spent and secondly, there are high tariffs to protect Swiss farm produce. Meat had an average tariff of 126 percent and milk of 102 percent in 2012, which is reflected in very high consumer prices – but also in that Switzerland is almost self-sufficient in these produce. The self-sufficiency rate for animal products was 95 percent in 2009 while it was just 48 percent for the less protected plant products (some if which are imported as feed to the animals) [i].

A negative effect of the high support levels is that it can trigger surplus production which has to be dumped in global markets, thereby suppressing the world market prices. While there are some such effects of the Swiss agriculture support there are small and shrinking. It shall be noted, however, that the forces of competition also works inside the country and that ultimately, Swiss farmers quit, farms get bigger also through these internal forces. There were 90,000 farmers in 1990 while in 2011 there were 58,000 farms of which 41,000 could be considered full-time operations. Still, small farms persist, or as expressed ina 2013 report from the OECD, “Switzerland’s heavy support sustains inefficient farming structures”. Almost one third of the considerable Swiss agriculture support is explicitly for ensuring domestic food supplies. Switzerland, contrary to most other countries, still maintains emergency food reserves for several months for a variety of food stuffs[ii].

It is hard to assess how good the Swiss support is and how it plays out in reality. Also, Switzerland is a very wealthy country and many countries would find it hard to extend this level of support. It is still interesting to compare the developments in Switzerland and in other countries. For example, in my native Sweden, which through the EU already has some support and protection, but not at all on the level of Switzerland, we import half of our meat, despite the fact that the farming conditions are quite good.

In the 1980s, the World Bank investigated agriculture policies in eighteen developing countries and found that in most of them, Brazil being an exception, governments extracted more resources from their agriculture sector than they supported them with, a striking difference to OECD countries[iii]. To make matters worse, the money that does get spent is often spent on in­efficient and/or harmful subsidies, especially subsidies for chemical fertilizers. Of the farm budget in Zambia 80% is used for fertilizers and price support to maize. In 2012 Zambia had a surplus of maize it couldn’tsell for the price they ask, and mountains of maize were rotting. In India, subsidies reached new record heights in 2009. The Food Corporation of India used US$ 10 billion for food subsidies and the Ministry of Fertilizers used US$ 20 billion dollars for subsidies of chemical fertilizers. To this one can add federal support for food security and crop insurance as well as state programs for energy, seeds, seed­lings, livestock, tractors, pumps, irrigation, etc. Despite all support measures, Indian farmers are under huge stress. Just in 2007, 16,600 suicides were reported among Indian farmers (Tehelka 2009).

All in all, shaping agriculture policies is hard. Often citizens and politicians want to combine low cost policies with cheap food based on free trade with extensive care for environment. But sorry, it isn't working and we should stop fooling ourselves. Unlimited competition is simply not sustainable.